FREQUENTLY ASKED

QUESTIONS

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1. What types of bankruptcy are available? There are six chapters of bankruptcy: Chapters 7, 9, 11, 12, 13, and 15.  Taking these out of order, Chapter 9 is for municipalities only, Chapter 11 is a business reorganization chapter typically only filed by sizeable companies, Chapter 12 is a reorganization chapter only for farmers and fishermen, and Chapter 15 is for cross-border cases (such as when the creditors of the person filing bankruptcy are in another country).  Therefore, most people who file bankruptcy file either Chapter 7, more commonly known as “liquidation” or “total bankruptcy”, or Chapter 13, more commonly known as “reorganization” or a “wage earner plan,” and those are the two chapters on which this website focuses. 2. What is the difference between Chapter 7 and Chapter 13? There are several differences between Chapter 7 and Chapter 13, and a more thorough discussion can be found on the “Chapter 7 vs. Chapter 13” page, but basically Chapter 7 is a relatively quick process in which one discharges his or her debts that are permitted to be discharged in bankruptcy, whereas one who files a Chapter 13 makes payments to a Chapter 13 bankruptcy trustee for 36 to 60 months and pays back a portion of what he or she owes, depending on what he or she can afford to repay, and the portion of the debt that is not paid back is usually discharged. Based on this simplistic explanation, it sounds as if everyone would want to file a Chapter 7 rather than a Chapter 13.  However, this is not necessarily the case since Chapter 13 has several complex advantages over Chapter 7.  For example, Chapter 13 will usually allow one to stop the foreclosure on a home or the repossession of a car, whereas a Chapter 7 will often only delay the foreclosure or repossession. Some books on the various chapters and their differences can be found here. One should always consult with an attorney in order to determine which chapter best suits their specific situation. 3. Do I lose all of my property if I file? No.  You can keep property as long as it is exempt, and as long as, if it has a lien on it that does not go away in bankruptcy, you pay the lien off in one of several different ways Regarding property being exempt: In both a Chapter 7 case and a Chapter 13 case, persons who file bankruptcy may keep all of their property which is “exempt.”  Bankruptcy law is federal law, but the federal government decided to let the individual States decide how much property a person filing bankruptcy in that State may retain.  States may use the federal exemptions found in 11 U.S.C. § 522, or they may "opt out" of the federal exemptions and use their own, or they may elect to make their own exemptions and also make the federal exemptions available to their residents.  So, each State determines how much property (including real estate, such as your home, and personal property, such as your car) a person may retain if they file bankruptcy in that State, and property one gets to keep is called the “exempt” property.  Property with a value lower than the exemption dollar amount determined by the State is deemed “exempt” and may be retained by the person filing bankruptcy.  Property that is worth more than the exemption amount may be sold by the bankruptcy trustee to pay creditors, or cause the person in bankruptcy to have to pay the trustee the negotiated value of those assets either directly in Chapter 7 or through a Chapter 13 Plan to keep them. Therefore, the amount of property a person may keep in a bankruptcy normally depends on the State in which the bankruptcy is filed.  If a person has not lived in a State for at least 2 years, he or she may be required to use the exemptions from the prior State of residence or, in some cases, the federal exemptions - see your attorney for details.  Indiana has opted out of the federal exemptions and has developed its own exemptions (see Indiana Code § 34-55-10-1 in which Indiana declared its intent to develop its own exemptions and not allow the use of federal exemptions). In Indiana, there are several exemptions that apply to several different types of property, and they are found in several different sections of the Indiana Code.  There are also some federal exemptions to which everyone is entitled, even in States that opted out of the federal exemption plan.  So, an exhaustive discussion is not practical here, but two of the most common exemptions used in Indiana include the one relating to personal property (such as cars, furniture, clothing, etc.) and the exemption relating to the residence of the person filing bankruptcy and/or his or her dependents (see Indiana Code § 34-55-10-2(c) but note that the amounts listed in that code section are inaccurate since those amounts are periodically updated by 750 IAC 1-1-1).  Basically, persons filing bankruptcy in Indiana may retain up to $10,250 personal property and $19,250 equity in their residence.  These exemptions may be invoked by each person filing bankruptcy, so a married couple filing a joint bankruptcy may retain up to $20,500 personal property combined and up to $38,500 of equity in their residence combined.  Another common exemption is the cash exemption, which is $400.00 per person. If one owns personal property or has equity in real estate above these exemption amounts, the bankruptcy court may sell the property and give the sale proceeds above the exemption amounts to the creditors.  Property being sold is more common in a Chapter 7 than a Chapter 13, since in a Chapter 13 there are some avenues to keep property even though it is significantly above one’s exemption amounts.  Therefore, persons in a Chapter 7 only lose property if it’s worth more than their exemption amounts allow them to retain, and persons in a Chapter 13 seldom ever lose any property even if they are over their exemption amounts so long as they structure their Chapter 13 Plan appropriately.  Persons in Chapter 7 can also sometimes retain unexempt property if they can pay the trustee a negotiated amount to let them keep the unexempt property (for example: the debtor, through their attorney, says to the bankruptcy trustee: "I understand you want to sell my $20,000 car because I can only protect up to $10,250 worth of personal property; However, after protecting my household goods, clothes, etc., I had $6,200 of my $10,250 exemption left, all of which I applied to the $20,000 car, leaving only $13,800 of it unexempt.  Also, if you sell it, it will cost you money to hire a tow truck, store it until the sale, insure it until the sale, hire an auctioneer, transfer the title, etc., which I project will cost you $2,000.  Therefore, I will pay you $11,800 in cash if you let me keep the car, since that is the amount I project you would net to give to creditors if you sold it.").  This is a unique negotiation in each case, and of course never takes place if the debtor can’t come up with the money to pay the negotiated settlement to the trustee.  In Chapter 13, this same concept is employed to keep un-exempt property, by paying enough money into the Chapter 13 Plan so that creditors get the amount they would have gotten had the un-exempt property been sold (and this is sometimes called the Best Interest of Creditors test), except in Chapter 13 the debtor has 4 to 5 years to pay the amount, whereas in Chapter 7 the debtor has to come up with the funds much more quickly. One should discuss the exemptions pertinent to their case with an attorney prior to filing a bankruptcy petition. Regarding property with liens: If a person filing bankruptcy has a lien on a piece of property (such as a mortgage on a house or a loan on a car) the lien must either (1) continue to be paid normally, (2) continue to be paid through a Chapter 13 Plan, or (3) the lien must be removed (called “avoided”) through the bankrutpcy process, in order for the property to be retained.  Some liens can be avoided (canceled and discharged) in bankruptcy, and others can’t.  For example, mortgages usually cannot be avoided in bankruptcy if you want to keep the home (though you do have the option to surrender the home back to the lender and discharge the mortgage).  So,  one cannot file bankruptcy and wipe out their mortgage and still get to keep their home (though Chapter 13 can help one get current on a mortgage again if one has fallen behind on one or more mortgage payments).  There is an exception to this, wherein debtors in Chapter 13 may "strip" a junior mortgage or mortgages, which means wipe them out, if they owe more on superior mortgage(s) than the home is worth.  This is normally done by motion or adversary proceeding during the Chapter 13 case. Be sure and ask your attorney for details, especially if you owe more on your first mortgage than your home is worth and you have a second mortgage, or if you owe more on your first and second mortgages combined than your home is worth and you have a third mortgage, etc). 4. Will I have to go to court? Yes.  Each person who files bankruptcy must attend one hearing called the “First Meeting of Creditors.”   Sometimes this hearing is called the “341 Hearing” since Section 341 of the Bankruptcy Code is the section which requires that a hearing be held. In southern Indiana, each person who files bankruptcy must attend their First Meeting of Creditors in one of four cities, depending on which county they live in: Indianapolis, New Albany, Terre Haute, or Evansville.  Click here to see which Bankruptcy Court you will go to based on the county in which you live. The First Meeting of Creditors is usually not held in a courtroom since it is not presided over by the Bankruptcy Judge.  Instead, the court appoints a bankruptcy trustee to oversee the bankruptcy case, and it is this trustee who presides over the hearing. The typical First Meeting of Creditors lasts from five to twenty minutes, during which time the trustee will ask the debtor (the person who filed bankruptcy) questions about his or her case.  The debtor’s attorney is also present to assist the debtor with technical questions.  Creditors may also appear at this hearing if they like and ask the debtor questions, though they usually do not attend. Most of the time this is the only hearing a person who files bankruptcy must attend, though occasionally one may have to attend additional hearings to resolve special matters (and you can discuss this possibility with your attorney). 5. How does the process of filing bankruptcy work? First, one consults with an attorney to discuss if bankruptcy is the best option for him or her.  After the consultation, if the person decides to file bankruptcy, then he or she provides the relevant information and documents to his or her attorney to prepare the bankruptcy petition, which is the document that the attorney will file with the Bankruptcy Court to initiate the bankruptcy case.  The person filing bankruptcy will carefully review the petition for completeness and accuracy and sign it under oath before it is filed. Also prior to filing the bankruptcy case, one must obtain a certificate of credit counseling from an approved credit counseling agency either on the internet, by phone, or in person.  The certificate is good for 180 days.  Later, after the case is filed but before the case is over, one must also take a two hour debtor education course either online, by phone, or in person.  Click here for a select list of counseling and debtor education providers for Southern District of Indiana.  If you do not live in the Southern District of Indiana, click here for a complete list of approved providers for the whole country. After the bankruptcy petition is filed, the court will notify all of the creditors that the case has been filed so that creditors may not continue to call, bill, or harass the person who filed (and this is called the “automatic stay,” which basically “stays” creditors from continuing to collect from the debtor - see 11 U.S.C. § 362).  Also, creditors may not foreclose on a home or repossess a car once they have notice of the bankruptcy filing unless they first get permission from the court or unless the debtor has filed a previous bankruptcy case or cases too recently, in which case the bankruptcy protection may only go into effect temporarily or not at all (ask your attorney, especially if you have had one or more bankruptcies pend at any point in the prior 12 months). About a week after the case is filed, the court will notify the person who filed bankruptcy, their attorney, and all of the creditors of the date, time, and location of the “First Meeting of Creditors,” which is the hearing that the person who filed bankruptcy and his or her attorney must attend.  This hearing is usually about five weeks after the date on which the bankruptcy petition was filed. Each debtor must also attend an debtor education class on financial management (around 2 hours long) either online, on the phone, or in person and file a certificate indicating they completed the class before their discharge will be issued by the court. After the hearing, a Chapter 7 case is normally closed 60 days later (at which time the court mails an “Order of Discharge” to the person who filed bankruptcy).  In a chapter 13, after the hearing and after any issues that arise are resolved, the court will issue an “Order of Confirmation” in the mail to the person who filed bankruptcy, approving the Chapter 13 Plan.  The Chapter 13 then lasts 36 to 60 months (as indicated in the confirmed Chapter 13 Plan) and at the end of the Chapter 13 Plan term and upon application from the debtor, the court will mail an “Order of Discharge” to the person who filed bankruptcy, ending the case. 6. What types of debt may be discharged in bankruptcy? Debts which bankruptcy will not usually discharge include income taxes that are less than three years old, income taxes that are more than three years old if the returns were not filed accurately or on time (though this is really complex, ask your attorney), trust fund taxes of any age (such as withholding taxes, i.e. when an employer failed to pay withholding taxes for employees), student loans, child support, alimony, criminal fines, damages resulting from willful or maliciously injury or from accidents involving alcohol or drugs, and fraud.  These are called “nondischargeable” debts. Bankruptcy will usually discharge all other types of debts, including credit cards, personal loans, bank overdraft fees, amounts due after the sale of a repossessed vehicle or foreclosed-upon home, utility bills, medical bills, back rent, etc. It should be noted that even though there are some types of debt that are nondischargeable, even these nondischargeable debts can usually be dealt with in a Chapter 13 case.  Also, some debts which are nondischargeable in a Chapter 7 case are dischargeable in a Chapter 13, which is one of Chapter 13’s advantages over Chapter 7. Similarly, it should be noted that some types of debts which are normally dischargeable may in some cases be declared by the Bankruptcy Court to be nondischargeable.  For example, credit cards are normally dischargeable, but if one uses a credit card too recently before filing a bankruptcy or in too large of an amount (or both), the Bankruptcy Court may decide that the credit card was used after the person knew he or she would be filing bankruptcy on the debt, and therefore the Bankruptcy Court would not allow the person to discharge the credit card. 7. How can bankruptcy hurt me? You may be expecting the answer to be “It wrecks your credit for 10 years.”  But, that is usually not true.  While Chapter 7 is on one’s credit report for ten years, and Chapter 13 is on one’s credit report for seven years (though the Fair Credit Reporting Act seems to imply both chapters should be on your credit report for 10 years - see Fair Credit Reporting Act § 605(a)(1) [15 U.S.C. § 1681c]), your credit score is often higher (sometimes much higher) in as little as 12 months after the bankruptcy is filed, than what it was before the bankruptcy was filed.  I often have clients whose credit score is more than 100 points higher than their pre-bankruptcy score within a year.  However, the appearance of bankruptcy on one’s credit report may have a negative impact on one’s ability to get credit for a time, and may influence the interest rate one has to pay for credit that is received, but the frequently-improved debt-to- income ratio and higher credit score after bankruptcy usually overcomes the stigma. One can normally acquire a car loan very shortly after filing and a mortgage 24 months after filing (assuming other credit factors are acceptable such as employment, income, etc.). Some books on credit repair can be found here. 8. How can bankruptcy help me? Bankruptcy is not a failure - it is a fresh start. In most cases, bankruptcy can: stop creditor harassment , stop garnishments and wipe out judgment liens on real estate.  It can get rid of credit card debt, loans, medical bills, old utility bills, amounts left due and owing from repossessed cars and foreclosed homes, judgments, small claims, and most other types of debt. Chapter 13 may be used to stop foreclosures and repossessions, catch up rent or utilities that are behind, and allow a person to restructure most or all of his or her debts into a reasonable and affordable repayment plan (called a Chapter 13 Plan).  Also, as discussed above, bankruptcy usually increases your credit score quickly (since it cancels the negative information that is keeping your score low). Bankruptcy can in many cases fix “under water” or “upside down” loans, so for example if you owe more on a car than it is worth, in bankruptcy you often only have to pay the value of the car, not the high loan balance.  Bankruptcy can also help you adjust high interest rates to much more reasonable interest rates. Bankruptcy doesn’t usually discharge student loans (though in some cases it can), but it can force the student lenders to stop collecting for up to five years if you file Chapter 13. Bankruptcy can help you pay back debts you want/need to keep, and often cancel interest and late charges from accruing (even on tax liability). An indirect benefit of bankruptcy, and probably more important than any other benefit, is that bankruptcy can relieve stress and give you a plan to deal with debts so that you can sleep at night.  Not to be overly dramatic, but it can save money, marriages, and lives.  Life is too short to spend it in a constant state of worrying about bills. If you are like most people considering bankruptcy, you want to pay your bills but you can’t  keep all your creditors happy (for many reasons, including divorce, medical bills, job loss, bad credit making you pay high interest on everything you buy, etc).  If that is the case, bankruptcy is a good option to consider: it can stop the pressure and let you catch your breath, and then, if you choose, you can still pay back some or all of your creditors later, on your terms.  The Bankruptcy Code does not prohibit a person from voluntarily paying back their bills after the bankruptcy is over if the person later decides they can afford, and want, to do so. 9. What fees do I have to pay to file bankruptcy? There are usually three fees one must pay to file a bankruptcy case: attorneys fees, the filing fee charged by the court, and credit counseling/debtor education fees. Attorneys fees vary depending on the complexity of the particular case and the chapter filed.  One’s attorney should indicate the amount of the attorneys fees before one hires the attorney to proceed with his or her case. The filing fee goes to the court to administer the case and is a fixed amount set by the government.  Currently, the filing fee for a Chapter 7 case is $335.00, and the filing fee for a Chapter 13 case is $310.00. Credit counseling fees are the fees you pay to a third party credit counseling service to get your credit counseling certificate (before you file your bankruptcy case) and to get your debtor education certificate (after you file your case but before your case can be successfully closed).  These fees usually total around $20.00 to $50.00 depending on which provider you use. 10. If I am married, does my spouse have to file too? No.  A married person may either file jointly with his or her spouse or individually.  If the spouse does not file bankruptcy also, the spouse’s credit is generally unaffected.  People who are not married may not file a joint bankruptcy case together. One should note that it is problematic for a person who is filing an individual bankruptcy to transfer assets to his or her spouse or to anyone else shortly before filing bankruptcy.  Talk to an attorney before any such transfers are made. 11. Can I run up my credit cards and then file bankruptcy? No.  The trustee assigned to a case can object to the bankruptcy if he or she feels that the person who filed the bankruptcy made charges on a credit card or bought anything on credit when that person knew he or she would eventually file bankruptcy on the debt.  Also, creditors may object if they see a spending "spike" prior to filing bankruptcy. If the trustee or a creditor prevails on their objection, the Bankruptcy Court can declare the credit card to be nondischargeable, dismiss the case, or even allow criminal proceedings to be instituted against the debtor. 12. What can I do to avoid ever having to file bankruptcy? No one without a crystal ball can definitively advise anyone on how to prepare financially for life’s misadventures.  Sometimes circumstances arise that force even the most financially conscientious persons to file bankruptcy.  However, we can relate what our experience tells us are the most common reasons bankruptcies are filed so that you may try and avoid these pitfalls. First, unexpected medical bills for which one has no insurance or inadequate insurance causes a considerable number of bankruptcies.  You should always try to maintain the best health insurance coverage you can in order to avoid accumulating a massive amount of medical debt.  It may well be the case that it is more to your advantage to take a lower-paying job that offers good health insurance rather than take a higher-paying job that does not offer insurance unless you will use the extra money from the better paying job to fund your own health insurance.  That being said, even with health insurance, some people still end up in bankruptcy because even paying only a deductible plus medication can still be financially devastating.  But, the best you can do is try to get as much coverage as you can.  Besides, not having health insurance may cause to you be subject to a fine pursuant to the Affordable Care Act.  This is a little off-topic, but in the event you do get fined for not having health insurance - and do NOT take this to mean I am suggesting it is okay to not have health insurance, because it is very important to have - but if you do get fined, keep in mind there a several regular and hardship exemptions which may get you out of the fine, such as having filed bankruptcy, dealing with eviction or foreclosure, getting a shut-off notice on a utility bill, having medical bills you couldn’t afford, death of a family member, natural disaster, etc.  Read more about health insurance hardship exemptions, here. Read more about health insurance regular exemptions, here. Another cause of many bankruptcies is having no car insurance or inadequate car insurance and then getting into an accident.  It only takes one time to drop a cheeseburger in your lap and fly through the neighbor’s gazebo at sixty miler per hour in an Oldsmobile to realize that car insurance pays for itself.  Besides, it’s illegal to drive without it. Job loss is a another major cause of bankruptcy.  With so many employers pulling up stakes and moving out of town, or just folding altogether, this is a very common cause of bankruptcy.  Even companies just scaling back hours or cutting overtime can wreak havoc on your financial picture when you are depending on those extra hours.  This is a really troubling cause of bankruptcy because there is no good way to prepare for it.  One could say to avoid working at companies likely to move out of the country, but who's going to leave their good-paying job (however tenuous) to go make half as much for the sake of job security?  However, no matter how shaky the job, relying on overtime is shakier still.  If you're only able to pay your bills each month because of the overtime you work, or taking extra shifts, you're living too close to the edge and you should scale back your spending.  At least if you lose a good-paying job, you may be able to replace it with 60 hours at a lower payscale, but you have no chance of staying afloat if you were living on time-and-a-half on top of your high wage.  But, if you’re like most people, I know I’m preaching to the choir: you try to make as much as you can and try to spend as little as you can, but if the job ends, it’s game over financially.  The financial planning experts tell us to have 3 months of expenses in savings at all times in case of job loss.  I’m sure that’s good advice in a perfect world, but for some reason I picture them writing that advice from the comfort of their Bugatti, because I don’t know many people that can afford to do that.  But, as my grandpa used to say, it’s not what you make, but what you save.  So, to whatever extent you can try to put a little bit back in savings each paycheck and forget about it.  It might grow faster than you think.  Credit card usage also forces many people into bankruptcy.  The interest and fees typically compound with such ferocity that one can dig a very deep financial hole without realizing it.  Paying only the minimum payment each month is the same as flushing your money since many credit cards will take decades to pay off if you only pay the minimum payment.  By way of example, paying minimum payments on a $10,000.00 credit card balance with a 15% interest rate would take about 28 years to pay off.  You could nearly buy a house in that amount of time, but instead your money will still be going toward a one-year-old’s birthday present you bought for a kid who’s now pushing 30.  Many people are of the opinion that you need a credit card to get by in the modern world.  “I need a credit card for emergencies” and “I can’t even rent a car or buy anything on the internet without a credit card” seem to be common arguments supporting this position.  And, it's true that credit cards have opened up a lot of possibilities and they're very convenient.  However, one can use a debit card exactly like a credit card, but the money is drawn from your own bank account rather than a credit card company so there is no risk of being stung for interest and fees.  A small savings account earmarked “for emergencies only” is far more beneficial to deal with emergency expenditures than a credit card since you earn interest on the money while it sits in the bank rather than paying interest on it after you spend it. 13. What alternatives are there to filing bankruptcy? Some people have success avoiding bankruptcy by acquiring a home equity loan.  If you own a home and have sufficient equity in that home, you may be able to get a home equity loan (which is a mortgage) and use the money to pay off other debts.  This process is called “debt consolidation,” and there are some advantages and disadvantages to consolidating multiple debts into a single home equity loan. Regarding the advantages, first, a home equity loan will usually have a better interest rate than the rate on the other debts you are seeking to consolidate (especially if the debts you want to consolidate are credit cards or personal loans). Second, home equity loans may allow a repayment term that is several months or years longer than the repayment terms of the debts being consolidated, so the monthly payment will be lower and more manageable.  While it costs you more interest over a longer repayment term, the improved interest rate may offset this.  Third, one may be able to settle the consolidated debts for a lower amount than the total amount owed on the debts.  For example, if you owe $21,000.00 in credit cards and you can borrow $13,000.00 as a second mortgage on your home, you may be able to negotiate with the credit card companies and get them to accept the $13,000.00 as full and final settlement of the cards, and thereby save $8,000.00.  It should be noted that there are some pitfalls with debt settlement, such as the IRS considering the forgiven debt as income.  It is possible that, in the example above, the IRS will want you to pay taxes on the forgiven $8,000.00 (unless you qualify for an IRS exception or exclusion from the forgiven debt being deemed income), so it is always a good idea to save some money back for taxes when settling debts.  Another pitfall is that creditors with whom you are trying to settle a debt may tell you they'll accept a certain amount as full and final settlement on the phone, but if you don't get it in writing prior to sending the settlement funds, it is possible that they'll keep billing you for the balance.  When you call and tell them you settled the debt on such-and-such date with James, they might say “we have no record of that, and he doesn’t work here any more.”  Get it in writing before paying, even if it is just a fax or email.  Another pitfall is that when the creditor does accept a settlement amount, they will want the settlement amount in a lump sum in a very short amount of time, so you frequently need to have all of the funds on hand and ready to go prior to settlement.  Another pitfall is that if you miss the deadline to get the settlement funds to the creditor, they will say the settlement was canceled because you missed the deadline and they will keep billing you for the balance.  So, it is always best to send settlement payments certified with return receipt requested or pay on the phone and get a confirmation number so you can prove that the creditor received the funds timely.  Go here for books on debt settlement. Finally, home equity loans can be advantageous for tax purposes.  It may be the case that interest paid on home equity loans is tax deductible (see a tax professional), whereas the interest paid on most debts that are consolidated is not usually tax deductible.  Also, having a mortgage may qualify you for a mortgage exemption on your property taxes (ask your county official). However, one should be cautioned that while home equity loans may be helpful in avoiding bankruptcy, you should ensure that the home equity loan will put you in a good financial condition with an easily manageable payment prior to entering into the loan, and afterwards you should avoid credit cards like the plague.   The reason for this is that it is especially unfortunate if you consolidate your debts with a home equity loan but then ultimately wind up having to file bankruptcy anyway.  Home equity loans may not usually be discharged in bankruptcy unless the home is surrendered and lost, whereas many types of debts people consolidate with home equity loans are usually dischargeable in bankruptcy.  So, home equity loans turn what is typically unsecured, dischargeable debt into secured, nondischargeable debt.  In other words, by doing a home equity loan, you may be turning debts you could have gotten rid of in bankruptcy into debts you CANNOT get rid of in bankruptcy, so caution is advised! Similar to home equity loans are reverse mortgages.  Persons who are 62 years old or older may qualify for a reverse mortgage, which every good bankruptcy attorney should have in the back of their mind as a potential alternative for such clients.  A reverse mortgage is a U.S. Dept. of HUD- overseen program, and may help a client pay off debt, get rid of their obligation to make a mortgage payment entirely, and allow them to keep their home.  More info on reverse mortgages can be found here. If you do not own a home, or do not have enough equity in your home to qualify for a home equity loan, or just don’t want to take that step, then you may be able to avoid bankruptcy by contacting a credit counseling service.  Credit counseling services work with most of your unsecured creditors (i.e. creditors who do not have  any collateral to repossess, such as credit cards, medical bills, etc.) but they usually will not help with secured creditors like car lenders, mortgage lenders, etc.  The credit counseling service will contact your unsecured creditors and try to get those creditors to reduce the balances owed, the interest rates, and/or the monthly payment amounts.  Then you simply pay a single monthly payment to the credit counseling service, who then disburses the money to the creditors.  This monthly payment continues until the creditors are all paid off.  This not a loan; the credit counseling service doesn’t pay off your debts and then you pay the credit counseling service back; rather, your money goes to the credit counseling service, who usually then deducts some nominal fee, then they disburse your money out to the creditors. Credit counseling services should be selected carefully since some credit counseling services are more reputable than others.  A credit counseling service with whom past clients have had success in avoiding bankruptcy is Apprisen Credit Counseling, which may be reached at 1-800-355-2227. Finally, some persons may be simply "judgment-proof" and not need to file bankruptcy simply because they have no garnishable wages nor un-exempt property that can be seized by creditors. However, bankruptcy is still often preferable to avoid the creditor harassment and court appearance obligations that electing not to file bankruptcy can cause.  Talk to your attorney about this. 14.  Will I get fired for filing bankruptcy? No.  The Bankruptcy Code has a provision in 11 U.S.C. § 525 which prohibits employers from discriminating against an employee solely based on the fact that the employee filed bankruptcy.  In many cases, an employer doesn't even know the employee filed bankruptcy, though in Chapter 13 cases if you set up Chapter 13 Plan payments to come out of wages, your employer will know about the wage deduction. 15.  Will my creditors stop harassing me if I file bankruptcy? Yes, in most cases.  11 U.S.C. § 362 requires creditors to immediately stop harassing the debtor upon filing of a bankruptcy petition.  This same code section also generally stops garnishments, repossessions, writs of attachment, sheriff sales of homes, foreclosures, lawsuits, and the like.  It should be noted that there are some instances in which bankruptcy will only temporarily stop collection efforts, or not stop them at all, if previous bankruptcy(ies) pended too recently,  unless and until the debtor timely requests the stay be extended or imposed by the Bankruptcy Coourt and the request is approved by the Court (see 11 U.S. Code § 362(c)(3) and (4)). 16. Do I have to use a lawyer to file bankruptcy? No.  However, a bankruptcy filing can be complicated and it is advisable to seek professional help.  And no - I'm not just saying that because I am an attorney.  I'm saying that because if you don't plan or claim your exemptions properly, or you make transfers, payments or gifts in the months or years preceding your case that can be reversed by the bankruptcy trustee, or if you don't realize some piece of information needs to be disclosed that is not disclosed, or if a motion needs to be filed that isn't filed, etc, then a lot of bad things can happen.  And, even if you hire an attorney after-the-fact to clean up a botched bankruptcy filing, the attorney may not be able to reverse all of those mistakes AND you may end up spending a lot more in attorneys fees than you would have if you hired an attorney in the first place, all for a much less desirable result.  I'm not looking to save a buck by doing my own gall bladder surgery, and most people should not be trying to stumble through a bankruptcy on their own. 17. How often can you file bankruptcy? A Chapter 7 cannot be filed within 8 years of the filing date of a prior Chapter 7 or Chapter 11 bankruptcy that received discharge (see 11 U.S.C. § 727(a)(8)). A Chapter 7 cannot be filed within 6 years of the filing date of a prior Chapter 12 or Chapter 13 bankruptcy that received discharge (see 11 U.S.C. § 727(a)(9)) unless certain criteria regarding how much money was paid to unsecured creditors in the prior Chapter 12 or 13, and under what circumstances, are met. A Chapter 13 may be filed anytime after a prior case, but if it is filed within one year of the pendency of a prior case, the stay only protects you for 30 days unless you get the Court to extend your stay.  If two cases have pended within the year before a Chapter 13 is filed, then no stay goes into effect unless you can get the Court to grant a stay (see 11 U.S.C. § 362(c)(3) and (4)). Also, if a Chapter 13 case is filed within 4 years of the filing date of a prior Chapter 7, 11, or 12 case that received discharge, or within 2 years of the filing date of a prior Chapter 13 case that received discharge, then the current Chapter 13 can have a stay and reorganize debts but cannot be granted a discharge (see 11 U.S.C. § 1328(f)(1) and (2)). Obviously, these rules are complicated and should be discussed with an attorney. 18. Once I realize I may need to file bankruptcy, what should I do? First of all, STOP using credit cards.  Stop charging and stop making any cash advances.  Also, stop all services that continue to bill to credit cards, such as internet providers.  Don't get any more personal loans or payday loans.  The Bankruptcy Code has provisions against acquiring any of these types of debt too recently prior to filing a bankruptcy petition. Second, don't transfer any property to anyone else, and don't acquire any new property in your name. Third, don't destroy any business or financial documents.  You may not be entitled to bankruptcy relief if you cannot produce documents the court requires. Fourth, don’t make any major financial changes, like cashing out your retirement or moving all your money into your spouse’s bank account. Finally, contact an attorney and set up a consultation as soon as possible.  It may be advisable that you stop paying certain bills or take other actions, so you want to get advice as soon as possible. 19. Is the bankruptcy filing printed in the newspaper? Probably not. Bankruptcy filings are not required to be printed in the newspaper (or anywhere else).  But, they are public record, so it is technically not illegal for a newspaper to print them.  However, I suspect modern privacy concerns have made many newspapers steer away from printing such personal material when there is no legal requirement to do so, and it is an antiquated thing to do.  It has been years since I saw a newspaper print bankruptcy information. 20.  How long do I have to live in a State before I can file bankruptcy there? 91 days, basically.  28 U.S.C. § 1408 requires that one live in a district (i.e. most States are broken into multiple districts for federal court purposes) for the greater part of the preceding 180 days in order to file a bankruptcy in that district, and of course the greater part of 180 days is 91 days or more.  There are some minutia regarding this code section that should be discussed with an attorney. Also, you have to live in a State for 2 years to use that State's exemptions (thought there are some exceptions to this as well - see your attorney).  In other words, you have to live in a district for 91 days to file bankruptcy there, but if you have not been in that State for at least 2 years, you may have to use the exemptions from your prior State of residence (or federal exemptions) to determine how much property you can exempt/protect.   21.  I've heard of a "Chapter 20," what is that? There is no Chapter 20 in the Bankruptcy Code, but as an unknown individual at the Doney & Associates law firm surmised, while "…there is no real Chapter 20, … we bankruptcy attorneys amuse ourselves by proving that we can add."  A “Chapter 20” is when you file a Chapter 13 right after a Chapter 7.  One reason some people do this is because you cannot stop a home foreclosure with a Chapter 7, but you cannot file a Chapter 13 if your unsecured debt exceeds certain dollar amount.  So, if someone's home is being foreclosed but their unsecured debt amount exceeds the limit for a Chapter 13, those persons may file a Chapter 7 and wipe out the unsecured debt, then file a Chapter 13 and stop the home foreclosure.  There are other applications of a Chapter 20 as well.  Court's dispositions toward Chapter 20's vary from region to region. 22.  Do I have to have a certain amount of debt to file bankruptcy? No.  You may file Chapter 7 regardless of how much or little money you owe, and you may file Chapter 13 so long as your debt does not exceed certain dollar amounts pursuant to 11 U.S.C. § 109(e) with those debt cap amounts periodically adjusted for inflation.  However, if you don't owe very much, your situation may not warrant filing bankruptcy.  Ask your attorney about this. 23.  Does my filing bankruptcy protect a co- signer? It depends.  The debtor in bankruptcy can protect a co-signer by continuing to pay the debt after the bankruptcy is filed (either directly to the creditor after a Chapter 7 or directly or through the Plan in a Chapter 13) or have the co-signer file bankruptcy also. 24. What is the typical debtor profile? People from all walks of life and ages file bankruptcy for various reasons.  According to The Fragile Middle Class: Americans in Debt, Elizabeth Warren, Harvard Law School, the average age of persons who file bankruptcy is 38; 44% of filers are couples; 30% are women filing alone; 26% are men filing alone; Persons who file bankruptcy are slightly better educated than the general population; Two out of three people who file have lost a job; Half the people who file have suffered serious health problems; Over 91% of people who file have suffered a job loss, medical event, or divorce.  The states with the highest bankruptcy rates are Nevada, Georgia, Utah, Tennessee and California.  25. Is there anything I can do to get collection agencies to stop calling me besides filing bankruptcy?     Yes.  Collection agencies (which are companies who collect debts owed to another person or company) must follow certain rules in collecting debts pursuant to the Fair Debt Collection Practices Act, which is federal law written in Title 15 of the United States Code.  One may send to collection agencies a letter similar to the sample letter listed below in order to stop harassing phone calls.  However, sending this letter does not mean that the debt is no longer owed, or that the creditor cannot sue you to collect the debt, but merely requires the collection agency to follow certain rules in attempting to collect the debt.  Also, it should be noted that this letter is only applicable to collection agencies, which are companies collecting debts owed to another, and not to the original creditor if that creditor has undertaken their own collection activities.  It also does not apply to collection agencies which are collecting commercial (i.e. business-related) debt rather than consumer debt. The following sample letter is designed to be mailed to a collection agency with the sender retaining a copy: __________________________________________________ (Collection Agencies’ name)                                          (Date) (Collection Agencies’ address) Via Certified Mail, Return Receipt Requested, Article No. (certified article number) Re: (Your name) (Your account number) Dear Collection Agency: Please be advised that while I am not at this time disputing the validity of the debt on which you are collecting, though I expressly reserve that right for the future if it becomes applicable, I am hereby exercising my right under federal law to require you to collect on said debt in a legal fashion and in compliance with the Fair Debt Collection Practices Act. Pursuant to 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(c )) I am hereby informing you that I wish you, your company, and any and all agents thereof to cease further communication with me other than as permitted by the above-cited federal statute.  This means that pursuant to 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(a)(2)), the only further communications you are allowed by law to make to me is limited to (1) advising me that your further collection efforts are being terminated, (2) that you may invoke special remedies which are ordinarily invoked by your company, and (3) to notify me that you intend to invoke a special remedy. According to the same statute, you also may not contact my spouse, parent, guardian, executor, administrator, employer, or any other person in connection with the debt. Also, this letter serves as your notice that it is inconvenient for me, for the purposes of 15 U.S.C. 1692c (Fair Debt Collection Practices Act sec. 805(a)(1)), for you to contact me by telephone or in person at any time, and that all further communications from you to me must be made in writing. If you contact my spouse, parent, guardian, executor, administrator, employer, or any other person in connection with my debt, either by mail, in person, by telephone, or by any other means, or if you contact me by any means other than by mail, or if you mail me anything other than that which is permitted by law as described above, I may have the right to pursue sanctions against your company pursuant to 15 U.S.C. 1692k (Fair Debt Collection Practices Act sec. 813) or any other applicable state or federal law. Sincerely, (Your signature) (Your name printed) ____________________________________________

Bankruptcy Basics

Bankruptcy is the legal process in which a person or business that has become unable to pay its bills may have those debts canceled (called “discharged”) by a federal court, thereby relieving the individual or business from having to pay those debts.  The purpose of bankruptcy is

Chapter 7 vs. Chapter 13

Prior to getting into a discussion on whether one might select Chapter 7 or Chapter 13,  following is a brief description of each chapter: Chapter 7 Chapter 7 is commonly known as “liquidation” or “total bankruptcy.”  A Chapter 7 may be filed by most types of entities, including an individual, a married couple, an